A guide to interest rates for your commercial mortgage

Sold Home For Sale Sign in Front of New House

The past few years haven’t been the easiest for small businesses, but there seems to be a light at the end of the tunnel. The economy is picking up, even if it’s currently doing so at a snail’s pace, but SMEs are starting to have reason to think positively again.

What’s more, Government initiatives such as the Help To Buy scheme for residential homeowners and Funding For Lending for businesses are starting to encourage reluctant banks to lend money to small enterprises again. As a result, many small businesses and entrepreneurs are looking into investing in commercial property with commercial mortgages.

However, commercial mortgages are a slightly different beast to their residential counterparts and interest rates can vary. What is the truth on commercial interest rates? Let’s take a look:

They’re generally less competitive than residential mortgages

It goes without saying that, with millions of people in the UK looking for and paying a mortgage for their home, there are more personal mortgages than commercial ones in Britain – so by the basic principles of supply and demand, you’re likely to find less competitive rates on commercial mortgages.

For instance, on average commercial mortgages will have higher rates of interest and require larger deposits to pay down. Yet, for many investors this is a small price to pay, as the potential profits of owning a commercial property are more than worth the price of the loan.

Loan-to-value relates to interest rates

Like with most mortgages, the more that you put down as a deposit on your borrowing the better, as you’ll enjoy more competitive interest rates. This is known as your loan-to-value or LTV.

The Government’s currently keeping rates low

We’ve hinted at it already, but the Funding For Lending Scheme (FLS) is an incentive from the British Government that’s intended to unlock up to £60 billion of investment from the banks to small businesses. It’s starting to have an effect in all sorts of lending including commercial mortgages – with some lenders offering fixed rates under 1% of the current set rate as well as cashback incentives.

The initiative has recently been extended into 2015, so it’s clear that now is being seen as a good time to invest in commercial property.

They can vary depending on your accounts

When you apply for a commercial mortgage, the lender will consider a number of different factors, from standard checks like your credit rating to how viable your business is. You’ll need to provide them with a few years of audited accounts, but if the lender likes what it sees then you can enjoy much more competitive rates and amounts than a less successful business.

This helpful business advice was sponsored by Pure Commercial Finance. They specialise in offering small businesses and investors unbiased, expert advice and help in securing investment – from bridging loans and development finance to commercial mortgages, invoice factoring and business insurance.

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